IMF: Austerity decreases wages and increases unemployment

pgm

Member
Joined
Sep 8, 2011
Messages
510
Reaction score
34
Points
16
Location
South Florida
Finance & Development, September 2011 - Painful Medicine

The IFM studied cases in which a government either cut spending or raised taxes in an effort to cut the deficit. They analyzed 173 instances in 17 advanced economies (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Portugal, Spain, Sweden, United Kingdom, and the United States) over the past 30 years. The average size of these cuts were 1% of GDP a year.

The study found that these efforts decreased wages by .6% and increased unemployment by almost .5 percentage points (i.e., if you have 9% unemployment, it would go to 9.5% unemployment). The effects lasted about two years with some improvement after. It is more pronounced on those unemployed for over 6 months (the long-term unemployed).




The research also finds that the best way to blunt this pain is by decreasing interest rates (monetary stimulus) and devaluing the currency to boost exports. Two examples of this are Ireland in 1987 and Italy in 1992. The IMF's models predict that in the case where interest rates are near zero and cannot be cut, the cost of austerity may be double on the unemployment rate.

The IMF study does not discourage contraction (I don't see why it would, since that's been their prescription to the developing world since its start), but it says that governments need to be realistic about the reality that it will cause a short-term decline in employment and income. It says governments need to balance the reality that the economy will suffer with potential positives of reducing the deficit, such as bringing down interest rates and permitting cuts to distortionary taxes in the future (note, the IMF does not believe that all taxes are distortionary). It says if such cuts are deemed necessary, they should be approved now, but only reduce deficits in the future when the recovery is more robust.

There is more in there about entitlements and income inequality, but I'll leave that reading for you.

(I'm making a citation, because I had a copyright violation warning before:
Ball, Laurence, Daniel Leigh, and Prakash Loungani. "Painful Medicine: Finance & Development, September 2011." IMF.org. International Monetary Fund, Sept. 2011. Web. 13 Sept. 2011. <http://www.imf.org/external/pubs/ft/fandd/2011/09/Ball.htm>.)

From the website: Laurence Ball is Professor of Economics at Johns Hopkins University. Daniel Leigh is an Economist and Prakash Loungani is an Advisor, both in the IMF’s Research Department. This article draws on research one of the authors conducted jointly with Jaime Guajardo and Andrea Pescatori.
 

Oddball

Unobtanium Member
Joined
Jan 3, 2009
Messages
67,461
Reaction score
29,877
Points
2,300
Location
Drinking wine, eating cheese, catching rays
IMF= International banksters.

The study found that these efforts decreased wages by .6% and increased unemployment by almost .5 percentage points (i.e., if you have 9% unemployment, it would go to 9.5% unemployment). The effects lasted about two years with some improvement after. It is more pronounced on those unemployed for over 6 months (the long-term unemployed).
That'll happen when gubmint is pumping up wage and employment bubbles via bureaucracy.

Let the moocher class go get real jobs.
 
OP
pgm

pgm

Member
Joined
Sep 8, 2011
Messages
510
Reaction score
34
Points
16
Location
South Florida
Are you saying that the government is supporting an employment bubble right now and the unemployment rate should actually be higher?

Oh, here's the quote from the actual article, including the part that I left out about across-the-board spending reductions resulting from fiscal contraction:

Using this better measure, the evidence from the past is clear: fiscal consolidations typically have the short-run effect of reducing incomes and raising unemployment. A fiscal consolidation of 1 percent of GDP reduces inflation-adjusted incomes by about 0.6 percent and raises the unemployment rate by almost 0.5 percentage point (see Chart 2) within two years, with some recovery thereafter. Spending by households and firms also declines, with little evidence of a hand*over from public to private sector demand.
 

sparky

Gold Member
Joined
Oct 19, 2008
Messages
17,436
Reaction score
3,452
Points
280
Location
paradise
IMF= International banksters.

The study found that these efforts decreased wages by .6% and increased unemployment by almost .5 percentage points (i.e., if you have 9% unemployment, it would go to 9.5% unemployment). The effects lasted about two years with some improvement after. It is more pronounced on those unemployed for over 6 months (the long-term unemployed).
That'll happen when gubmint is pumping up wage and employment bubbles via bureaucracy.

Let the moocher class go get real jobs.
partially right Oddone

the banksters , as you put it (see how that got around?) entire goal is to crush labor

which means YOU and I are the moocher class in their eyes

~S~
 

Oddball

Unobtanium Member
Joined
Jan 3, 2009
Messages
67,461
Reaction score
29,877
Points
2,300
Location
Drinking wine, eating cheese, catching rays
Are you saying that the government is supporting an employment bubble right now and the unemployment rate should actually be higher?
Absolutely.

Why is it you think that the poorly disguised "stimulus" bill went primarily to bail out state legislatures that had overspent?

I'd give odds that we'd be better off had those states dumped agencies and bureaucrats to balance the books, and let those people go on unemployment until they could find productive work.
 

8537

VIP Member
Joined
Aug 23, 2010
Messages
7,754
Reaction score
729
Points
83
Location
New England's West Coast
I'd give odds that we'd be better off had those states dumped agencies and bureaucrats to balance the books, and let those people go on unemployment until they could find productive work.
Can you explain the mechanism by which laying off all those people between mid 2009 and late 2010 would have made us "better off"?

Would firms be more willing to hire if the unemployment rate was higher or something? Would higher unemployment expenses and lower incomes somehow make us better off?
 

8537

VIP Member
Joined
Aug 23, 2010
Messages
7,754
Reaction score
729
Points
83
Location
New England's West Coast
Fewer window-breaking bureaucracies and taxes dragging down the private sector = More resources for productive pursuits.
More resources for productive pursuits? How would laying off state workers create more resources?

and if companies are sitting on record reserves, why would adding to those reserves cause them to put resources towards productive pursuits for which there's no demand?
 

Oddball

Unobtanium Member
Joined
Jan 3, 2009
Messages
67,461
Reaction score
29,877
Points
2,300
Location
Drinking wine, eating cheese, catching rays
How does deficit spending, to keep the bureaucratic employment bubble pumped up, benefit anyone other than the bureaucrats?

The companies are sitting on their reserves for good reason....The central planners would be best advised to give up their attempts and social and economic engineering.
 

Wiseacre

Retired USAF Chief
Joined
Apr 8, 2011
Messages
6,025
Reaction score
1,297
Points
48
Location
San Antonio, TX
" The historical evidence also shows that fiscal consolidations based on spending cuts are less painful than those based on tax hikes. "

From the IMF report, wonder if Obama has read this? BTW, how strange is it to lower the payroll tax on one hand and raise personal income taxes on the other, to the same people?
 

8537

VIP Member
Joined
Aug 23, 2010
Messages
7,754
Reaction score
729
Points
83
Location
New England's West Coast
How does deficit spending, to keep the bureaucratic employment bubble pumped up, benefit anyone other than the bureaucrats?
By creating demand for products, but why did you avoid answering my question?

The companies are sitting on their reserves for good reason....The central planners would be best advised to give up their attempts and social and economic engineering.
So then why would giving them more money to sit on make people better off?
 

Oddball

Unobtanium Member
Joined
Jan 3, 2009
Messages
67,461
Reaction score
29,877
Points
2,300
Location
Drinking wine, eating cheese, catching rays
How does deficit spending, to keep the bureaucratic employment bubble pumped up, benefit anyone other than the bureaucrats?
By creating demand for products, but why did you avoid answering my question?
Gubmint agencies and bureaucrats don't create any demand for anything....Claiming that keeping them employed is "stimulative" to the economy is merely reframing the thoroughly debunked broken window theory.

There's you answer.

The companies are sitting on their reserves for good reason....The central planners would be best advised to give up their attempts and social and economic engineering.
So then why would giving them more money to sit on make people better off?
Nobody I know of is talking about giving them anything that they haven't earned for themselves...Not robbing a bank is not tantamount to giving them bags of money.
 
Last edited:

8537

VIP Member
Joined
Aug 23, 2010
Messages
7,754
Reaction score
729
Points
83
Location
New England's West Coast
How does deficit spending, to keep the bureaucratic employment bubble pumped up, benefit anyone other than the bureaucrats?
By creating demand for products, but why did you avoid answering my question?
Gubmint agencies and bureaucrats don't create any demand for anything....Claiming that keeping them employed is "stimulative" to the economy is merely reframing the thoroughly debunked broken window theory.

There's you answer.
Well, that's not my answer -it's just a regurgitation of the answer you've been trained to give. And it's wrong.

Government employees create demand for goods and services the same way employees at Safeway create demand for goods and services. In a depressed economy when the demand for liquid is so great that real rates are near zero, removing money from the consumption class only further depresses the economy.

The broken window fallacy is a full - employment scenario. Do you believe we're at permanent full employment, Tom?

The companies are sitting on their reserves for good reason....The central planners would be best advised to give up their attempts and social and economic engineering.
So then why would giving them more money to sit on make people better off?
Nobody I know of is talking about giving them anything that they haven't earned for themselves...Not robbing a bank is not tantamount to giving them bags of money.
Really? you can't think of anyone talking about giving them subsidies? You don't remember the screams when there was talk of removing subsidies on agricultural products and energy production?
 
Last edited:

Oddball

Unobtanium Member
Joined
Jan 3, 2009
Messages
67,461
Reaction score
29,877
Points
2,300
Location
Drinking wine, eating cheese, catching rays
By creating demand for products, but why did you avoid answering my question?
Gubmint agencies and bureaucrats don't create any demand for anything....Claiming that keeping them employed is "stimulative" to the economy is merely reframing the thoroughly debunked broken window theory.

There's you answer.
Well, that's not my answer -it's just a regurgitation of the answer you've been trained to give. And it's wrong.

Government employees create demand for goods and services the same way employees at Safeway create demand for goods and services. In a depressed economy when the demand for liquid is so great that real rates are near zero, removing money from the consumption class only further depresses the economy.

The broken window fallacy is a full - employment scenario. Do you believe we're at permanent full employment, Tom?
The broken window fallacy is the economic equivalent of alchemy.

Hiring more building officials will not create a demand for more construction contractors....Moreover, since gubmint produces nothing and has no money of its own, then those funds must either be diverted form productive pursuits or inflated into existence, neither of which helps out the productive.

So then why would giving them more money to sit on make people better off?
Nobody I know of is talking about giving them anything that they haven't earned for themselves...Not robbing a bank is not tantamount to giving them bags of money.
Really? you can't think of anyone talking about giving them subsidies? You don't remember the screams when there was talk of removing subsidies on agricultural products and energy production?
What subsidies on energy production?...Depreciation isn't a subsidy.

As for farm subsidies in general, and those for ETOH in particular, they can eat a fiery hot death as far as I'm concerned...Most of them end up in the hands of the likes of Con-Agra and ADM anyways.
 
Last edited:

Brutus

Senior Member
Joined
Feb 17, 2011
Messages
1,432
Reaction score
64
Points
48
The study found that these efforts decreased wages by .6% and increased unemployment by almost .5 percentage points (i.e., if you have 9% unemployment, it would go to 9.5% unemployment). The effects lasted about two years with some improvement after. It is more pronounced on those unemployed for over 6 months (the long-term unemployed).
Of course thats liberal and so idiotic. Does it mean the liberals have to always increase spending so wages and employment will always rise? If it was so simple and liberal we'd never have to worry would we?
 

Truthmatters

Rookie
Joined
May 10, 2007
Messages
80,182
Reaction score
2,263
Points
0
They will just keep supporting the historically failed ideas of the right.

They have no ability to change even in the face of massive failure of their own ideas
 

Truthmatters

Rookie
Joined
May 10, 2007
Messages
80,182
Reaction score
2,263
Points
0
Just denying the cold hard facts culled out of the worlds historic numbers is not very smart
 

Most reactions - Past 7 days

Forum List

Top